The Untold Story of the Mexican Peso

The date was February 21, 1857. New-Hampshire-born Franklin Pierce signed into law one of the last pieces of legislation in his term as the 14th President of the United States. Pierce, who served as a brigadier general in the US Army during the Mexican War, was ironically signing a piece of legislation ending a certain type of Mexican influence in the United States almost 10 years after he rode triumphantly into Mexico City carrying the Stars and Stripes. In addition to ending the US mint’s production of the half cent coin and redesigning the cent to a much smaller size familiar to everyone today, the legislation passed on that cold February day in 1857 made the circulation of Mexican money in the U.S. illegal and recalled all Mexican coins then being used in the United States and its territories. Section One of the act states:

“Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that the pieces commonly known as the quarter, eighth, and sixteenth of the Spanish pillar dollar, and of the Mexican dollar, shall be receivable at the treasury of the United States, and its several offices, and at the several post-offices and land-offices, at the rates of valuation following, that is to say, the fourth of a dollar or piece of two reals, at twenty cents; the eighth of a dollar, or piece of one real, at ten cents; and the sixteenth of a dollar, or half real at five cents.”

Section Two of the act stated that all Mexican coins turned into the government agencies mentioned in the first section would be melted down and refashioned into American coins. Silver coins in circulation at the time minted by the U.S. government included half dollars, quarters and half dimes. The act caused outrage among merchants and ordinary citizens throughout the young United States and its western territories. Most Americans today do not realize that for nearly a century of their country’s history, and even farther back into colonial times, the money minted south of the border in Mexico was regarded as more valuable and was more desired than coins issued by the US Mint and other monetary authorities. The currency known today as the Mexican peso, now the butt of jokes north of the border for its instability and perpetually declining value, was once the monetary unit that inspired the most confidence among Americans and was one of the premier currencies in the world, used as a medium of exchange on every continent.

Today, Mexico is the largest silver-producing nation on earth. When the Spanish first arrived in central Mexico, conquistador Hernán Cortés was received as a guest at the Aztec capital of Tenochtitlán by the Emperor Montezuma. Montezuma gave Cortés two disks, one made of gold to represent the sun and one of silver to represent the moon. While not as important to the Aztecs as gold, silver was still regarded as precious and used primarily by other groups to pay tribute to the Empire. During the Conquest of Mexico, the Spanish took over all of the silver mines first developed by the Aztecs and their tribute states, notably those in the modern-day areas of the Mexican state of Zacatecas and the town of Taxco. During the early Spanish times the older mines of the indigenous peoples were expanded and new silver deposits were found and exploited. With an overabundance of high-quality silver on their hands, the Spanish began minting coins in Mexico City.

The main silver coin minted in colonial Mexico City was known as the Ocho Reales, or in English “Eight Royals,” better known to the English-speaking world as a “Spanish Dollar” and often referred to “Piece of Eight,” coming from the Spanish phrase “peso de ocho,“or “weight of eight.” The Eight Reals coin measured 38 millimeters in diameter, about an inch and a half across and contained 394 grains of pure silver. The coin was first issued in Spain in 1497 as part of a monetary reform. A century later, the Eight Reals coin was being minted in Mexico City with a slightly different design. Those Spanish Dollars struck in the New World had what was called “The Pillars of Hercules” on the reverse side, and were sometimes called by English-speakers – and referenced by the act of Congress previously mentioned – “Spanish Pillar Dollars.” The coins were so numerous and were recognizable by almost everyone engaging in trade around the world. Some monetary historians believe that the Mexican peso de ocho was the very first international currency. In the Thirteen Colonies and the British possessions in the Caribbean, the Spanish Dollar was widely accepted as the primary medium of exchange. As British coins were used to pay British merchants for finished goods coming into the colonies, the Mexican-made silver pieces filled the void for everyday circulating coinage in those British colonies. In addition to the large-sized eight reals Spanish Dollar, smaller coins were also minted which allowed for easier exchange, and in the British colonies in America one eighth of the eight reals coin was known as a “bit.” The nickname of “two bits” for an American coin knowns as a quarter is still in use in the United States to this day.

The high regard that the Mexican peso had internationally in its heyday cannot be underemphasized. As Spanish galleons plied the Pacific Ocean and the Spanish Empire’s trade with the Orient increased through the Spanish Philippines, Mexican-made coins found great acceptance throughout Asia, especially in China and India, where they were often given special marks or stamps to guarantee silver weight and authenticity. Even the remote British penal colony of New South Wales, which would later grow into the proud nation of Australia, made use of the Mexican money. As with colonial America, the fledgling Australian colony faced a currency crisis soon after its founding in 1788 as British money was used to pay British merchants calling at Sydney Harbour. The net loss of currency to the British ships left very little circulating coins in Australia, which led to drastic measures by British governor Lachlan Macquarie in 1813. He ordered £10,000 sterling of Mexican pesos to be sent from Acapulco to Sydney. To make it difficult for the coins to leave the colony, Governor Macquarie decided to alter the Mexican coins. The centers of the Spanish Dollars were punched out. The center, called the “dump” was valued at 15 pence, and the remaining outer rim, called a “holey dollar” was valued at 5 shillings. These two new coins were counter-stamped with the name of the colony – New South Wales – and the value. The use of Mexican coins in Australia, while effective and practical, was short-lived. In 1825 the British Parliament passed The Sterling Silver Money Act which declared British coins the only legal tender in the Australian colonies and ended the use of the holey dollar. Although technically illegal, the use of the altered Mexican coins continued in Australia for a few years after the act in London was passed.

In the young United States, The Coinage Act, passed by Congress on April 2, 1792, not only established the US Mint but sought to regulate the coins used in the United States. One of the key elements of the act was to establish the silver dollar, which was based on the popular Mexican-made Spanish Dollar. The first Secretary of the Treasury of the United States, Alexander Hamilton, was said to have gathered dozens of worn-down Mexican eight reals coins to get an average weight on which to base the US dollar. Thus, The Coinage Act specified the new US Dollar to be 24.1 grams pure and 27 grams standard silver, or about 93% fine. It also guaranteed Mexican coins the status of legal tender throughout the United States and its territories for three more years, until the American mint was able to produce its own coins to replace the popular eight reals coins and their smaller denominations. In three years’ time the US Mint was not producing enough coins to meet the domestic demand, and as Congress usually does, it “kicked the can” down the road, and the legality of the Mexican coins used in the US was allowed as per acts of Congress passed in 1806, 1816, 1819, 1823, 1827, and 1834. Even as late as the 1840s, one in every four coins circulating in the United States, employed in everyday transactions, was minted in Mexico City. It wasn’t until the law passed during the Franklin Pierce Administration in 1857 that the Mexican peso became illegal to use as legal tender in the United States.

As Spanish power waned throughout the world and was supplanted by the British, French and Dutch empires, the use of Mexican-made silver pieces throughout the world declined. By the middle of the 1800s the Mexican eight reals coin was still seen as a major world currency, especially in Asia where it never lost its popularity, and was considered the most stable currency in Latin America. In 1869, the coin known by the many names previously discussed – the Spanish dollar, the Mexican dollar, the Piece of Eight, the peso de ocho, the eight reals coin – was officially rebranded as the “Peso” and redesigned. Chinese merchants immediately rejected the coin and accepted it at a 5% discount from the previous incarnation in use for centuries. Seeing the lack of international acceptance of the new peso coins, the Mexican government returned to the old eight reals coin 4 years later in 1873, but by that time silver prices were beginning to fall and gold became more of a desirable medium of exchange throughout the world. The last eight real coin was produced during the dictatorship of Porfirio Díaz in 1897. By 1900 the Mexican dollar, once preferred over the US dollar even within the borders of the United States, was now worth only 50 cents US. At the beginning of the 20th Century the Mexican peso had become quite ordinary and was on the road to becoming a fiat currency, or a faith-based currency with little intrinsic monetary value. The silver content of the peso dropped to 80% fine silver in 1918. Another debasement happened two years later in 1920 when the Mexican peso was minted with 72% fine silver. In 1947 the peso contained only 50% silver. By the late 1950s, the once-proud Mexican peso, featuring the likeness of revolutionary hero José María Morelos on its front side and the emblematic Mexican eagle on its reverse side, was only 10% silver. By 1968 the Mexican peso coin contained no silver at all. Base metal coins have been used since. The 1980s saw rampant inflation in the Mexican currency and at the height of the currency crisis the peso was traded at well over 3,000 Mexican pesos to the dollar. Under the administration of Mexican president Carlos Salinas de Gortari in 1993, the Nuevo Peso was introduced, effectively lopping off 3 zeros of the old peso in a sort of monetary reset. The Mexican people had a three-year window to exchange old banknotes for new ones. Silver returned to certain denominations of coins struck by the Mexican mint for general circulation in 1993. While the 1, 2 and 5 nuevos pesos coins contained aluminum-bronze centers and stainless steel rings, the 10, 20 and 50 nuevos pesos had 92.5% silver centers and aluminum-bronze rings. In 1996, the word “nuevo” was dropped on all forms of Mexican currency and the silver in the centers of the 10 peso coins was replaced with base metal. Although rarely seen in circulation, the 20, 50 and 100 peso coins are the only circulating coins in the world today containing actual silver.

As a postscript to the story of the Mexican peso, we can return to the young United States and the piece of legislation in 1857 effectively outlawing the use of Mexican coins as legal tender in the US. As most laws imposed from on high go, the 1857 law was unpopular, especially among merchants who were forced to change their accepted way to do business. As with most unpopular laws, this act of Congress generated great resistance at first as people were reluctant to cash in their Mexican coins in exchange for new US coins, especially the small cent which was unfamiliar and cheap-looking. Although Mexican coins disappeared from most cities throughout the United States by 1858, rural areas, especially in the West and Southwest still saw the old Mexican coins in circulation. The last known widespread use of the Mexican peso in the United States for commercial purposes, curiously enough occurred not in the western part of the country or near the US-Mexico border, but on the border of Pennsylvania and New York. A newspaper reported in 1883 that local miners and factory workers were still being paid in the old Mexico-City-minted Spanish dollars and local merchants were accepting them as legal tender, but at a discount of 85 cents on the dollar. This local circulation of the once-esteemed Mexican coins ended soon after the 1883 article appeared, and as dollars replaced pesos in the New York-Pennsylvania borderlands, the dollar would soon replace the Mexican peso as the world’s most respected currency.